House appears ready to move taxes first

The first major piece of legislation headed for a vote in the House is an omnibus tax measure that the Republican leadership hopes is not controversial but is likely to generate plenty of conversation.

The debate on House Bill 1050 starts in the Finance Committee at 8:30 a.m. Thursday and the first floor vote could come Monday.

It’s a tax package that includes a $100 cap on the privilege taxes that cities and towns can charge businesses – a provision that would cost local governments millions in revenue and raises the prospect of filling the gap with property tax hikes.

The measure also includes two more provisions that generated questions at a committee meeting earlier this week to impose a modest tax the liquid used in electronic cigarettes and change the way the state taxes certain, multistate corporations.

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The proposal would charge a tax of 5 cents per milliliter on the liquid used to create vapor in electronic cigarettes, which currently isn’t taxed in North Carolina. David Powers, vice president of state government relations for RAI Services Co., the parent company for R.J. Reynolds Tobacco and R.J. Reynolds Vapor, told lawmakers that his company was asking to be taxed on its new electronic cigarette product, Vuse.

The 5 cents per milliliter proposed tax represents a significantly lower tax than the state tax on cigarettes, which is currently 45 cents per pack.

At Monday’s Revenue Laws Study Committee meeting, Sen. Floyd McKissick, D-Durham, said he anticipates a migration from traditional cigarettes to e-cigarettes, a process that will decrease state revenue from cigarette taxes. “I just don’t know if 5 cents is where it needs to stay,” he said of the proposed new tax. “It’s a good starting point.” Legislative staff estimate the proposed vapor tax would bring in $2.1 million in 2014-15 and about $5 million a year after that.

A proposal to change the formula that determines how much multistate corporations pay in corporate and franchise taxes also was added to the omnibus bill. Put simply, multistate corporations are taxed based on a formula that takes into account a corporation’s property, payroll and sales in the state. The changes would give more weight to the company’s sales in the formula.

Proponents say the change would encourage manufacturing companies to invest in infrastructure and create jobs in the state. They also say that some neighboring states already weigh sales more prominently, giving them a leg up on North Carolina in economic development. “That is our goal, to try to create a rock-solid manufacturing base in North Carolina,” said Sen. Bob Rucho, R-Mecklenburg.

But others were skeptical of the proposal, which would result in some companies paying more in taxes and others paying less, and its timing, given projected revenue shortfalls. The proposal would decrease overall revenue to the state by about $10 million in 2014-15, $23 million in 2015-16 and more than $28 million a year after that, according to fiscal staff estimates.

While several Republican senators spoke in favor of the change, some House Republicans and Democrats said the proposal was too significant to be considered as part of the omnibus package and should wait until the long session, when the effects of last year’s tax reform legislation on the state’s revenue picture will be clearer.

“When you look at the bottom line of where we are right now in history, we really should wait and put this on the back burner and see what our revenues are going to be,” said Rep. Mitchell Setzer, R-Catawba, a chairman of the House Finance Committee.

The committee voted, however, to include the e-cigarette tax and the corporate tax change in the omnibus legislation. Rucho said the proposals would be debated in the House and Senate Finance Committees. The draft legislation also would place a $100 cap on the privilege taxes that cities and towns can charge businesses, along with several tweaks to last year’s tax reform package.

Under the Dome is your inside source on North Carolina politics and government and has been a regular feature in The N&O since 1934. Check here for the latest on state and federal government, political advocacy and upcoming elections. This blog is maintained by the N&O politics staff.